Thursday, June 25, 2009

Six Flags Files for Chapter 11

Six Flags Inc., one of the largest regional amusement-park companies, filed for bankruptcy protection Saturday.

The theme-park company, shouldering more than $2 billion in debt, had been negotiating with lenders, selling parks and laying off staff in a race to restructure outside of bankruptcy court. But it couldn't outrun the deteriorating economy and a looming $288 million payment due preferred shareholders this August, along with $31 million in unpaid dividends.

Six Flags hopes to exit bankruptcy quickly through a prearranged reorganization plan. It struck a deal with senior secured lenders that would allow it convert $1.8 billion in debt to equity.

The plan was backed by J.P. Morgan Chase & Co., the agent for the facility, and a steering committee of lenders, according to court documents. The support represents half the facility's obligations, the company said. The plan would also wipe out more than $300 million in preferred stock obligations.

Six Flags listed assets of $3 billion and liabilities of $3.4 billion, including $2.4 billion in debt at the end of March. Among its largest unsecured creditors were HSBC Bank USA with $400 million in bond debt and Bank of New York Mellon, holding more than $500 million in the company's debt.

The filing marked another highly-leveraged company falling victim to the deep recession. Six Flags' 20 parks dot North America, with operations in Chicago, San Antonio and Mexico City. Revenue in the first quarter fell 24% and the company delayed certain debt payments. Several of the park company's subsidiaries also filed for protection from creditors.

The Chapter 11 filing is a setback for investor Daniel Snyder, the Washington Redskins football team owner who took control of the theme-park company in a contentious proxy fight in 2005 and installed his own management team. The bankruptcy would likely wipe out Mr. Snyder's 6% stake.

In the midst of his battle to wrest control of the company, Mr. Snyder wrote a letter to Six Flags stockholders saying they "would have been better off hiding their money under a mattress" than investing in the company under its prior management.

"The current management team inherited a $2.4 billion debt load that cannot be sustained, particularly in these challenging financial markets," said Mark Shapiro, Six Flags' chief executive, in a statement. He said operations of the company's parks would be unaffected by the filing and that Chapter 11 protection was sought solely to "clean up the balance sheet."

Also losing out on Six Flags' financial rollercoaster: Microsoft Corp. founder Bill Gates, whose Cascade Investment LLC owned about 10.2 million shares, or an 11% stake. Other big equity holders include Dwight Schar, a Six Flags board member and part-owner of the Redskins alongside Mr. Snyder with a 5% stake; Citigroup Inc. with 9%; Barclays PLC with 6.7%; and hedge fund Renaissance Technologies LLC with 5.5%.

Six Flags warned earlier this year it could file for bankruptcy if it failed to reap concessions from lenders. Since April, it had been in discussions with lenders about a debt-for-equity swap, but failed to get enough takers.

A deadline for debt holders to swap certain notes for equity expired Friday night. Six Flags had extended that deadline by more than two weeks after falling well short of a 95% targeted acceptance rate.

Mr. Snyder's team, led by Mr. Shapiro, a former ESPN executive, had made some progress of late. Six Flags sold 10 parks and laid off about 300 workers. It tried to make its parks more family friendly, banning smoking in most areas.

Last year, Six Flags brought in more cash than it spent for the first time. Its losses narrowed in 2008 to $112.9 million, about half those of a year earlier. Sales nudge 5% higher to about $1.02 billion.

But last summer's record fuel prices, plunging consumer confidence and deteriorating credit markets weighed on Six Flags' balance sheet. The company lost even more money when the recent swine flu outbreak forced a temporary closure of its park in Mexico City.

A few months ago, Six Flags hired law firm Paul Hastings Janofsky & Walker LLP to prepare for a bankruptcy filing. It also hired Houlihan Lokey Howard & Zukin to negotiate with creditors.